Shake Shack (SHAK) is extending last week's earnings-inspired breakdown Wednesday. The stock closed down just above 2% at Wednesday as it stretches the selloff to 10% from its March 2 high. In the near term, more downside is likely, and with it a re-test of major support near the all-time lows.
Back in early November SHAK, exploded to the upside following its third-quarter earnings report. The stock shot up more than 10% on the news, but was unable to pierce the $40.00 area. SHAK stalled just below this level a few days after its Nov. 9 earnings report and was unable to move past this key area in December and January. As shares began to fade once again in early January, an ominous three-month top was left in place.
Ahead of last week's report, SHAK was consolidating in a narrow range while straddling the 200-day moving average. On Friday, this pattern was destroyed as the stock fell more than 6% after taking both the January low and the powerful Nov. 10 earnings-inspired breakout gap. As this breakdown continues, a drop down major support between $31.00 and $30.00 is likely. This important area includes the all-time lows set back in January of last year as well as the October low. Patient investors should view this area as a very low-risk entry zone. On the downside, a close below $29.00 would be a clear warning sign that the post earnings breakdown has not yet run its course.
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